IEA cuts oil demand forecast

The International Energy Agency (IEA) said at the weekend that it had cut its oil demand growth forecast for 2017 because of a weaker outlook for the world economy following Britain’s vote to leave the European Union.

Global oil demand growth is now expected to slow to 1.2 million barrels per day in 2017 from 1.4mb/d this year “due to a dimmer macroeconomic outlook”, said in its monthly oil market report. This is according to AFP report monitored by Business247 News Online.

The IEA had previously forecast growth of 1.3mb/d for 2017. Global demand will therefore reach 97.5mb/d next year after 96.3mb/d this year, it said.

The IEA said it was basing its projections on the International Monetary Fund’s decision in July to cut its world economic growth forecast following Britain’s vote to leave the EU the previous month.

“As a result the global outlook for 2016-17 has worsened,” the IEA said, saying Britain itself would suffer the most, but the rest of the EU was also likely to be hit as trade prospects and confidence weakened.

At the same time oil oversupply, which has again been weighing on the oil price since June, will disappear in the latter part of 2016, the IEA said.

“Our balances show essentially no oversupply during the second half of the year,” the IEA said.

Although the drop in the oil price by about $7 (6.30 euros) per barrel since its mid-June peak of over $52 “has put the ‘glut’ back into the headlines”, excess supply would likely be soaked up in the months ahead.

The IEA predicted “a hefty draw” on oil reserves in the current quarter after a stretch of uninterrupted builds.

This would “help pave the way to a sustained tightening of the crude oil balance”.

Meanwhile global oil supply rose by around 0.8mb/d in July as production both by OPEC and producers outside the cartel rose.

OPEC kingpin Saudi Arabia pushed output to its highest level ever and Iraq also pumped more, helping to hold total OPEC production at an eight-year high, the IEA said.

But while OPEC is providing the world with the fastest sources of supply growth it “is also notching up some of the biggest output losses”, the IEA said.

Cash-strapped Venezuela and Nigeria, where oil installations have been the target of militant attacks, have each seen declines of around 150,000 barrels per day compared to 2015, partly offsetting production gains in Iraq and post-sanctions Iran, it said.

Non-OPEC production has gained from Canada recovering from wildfire outages, but the US, China and Mexico have all produced less. Russia and Brazil, however, have managed to ramp up output.

The oil price fell early Thursday for a third day after figures showing high US crude stockpiles and increased Saudi production.

“With US oil rigs coming back on line and output declines stabilising at a time when the International Energy Agency is downgrading demand growth forecasts for next year, it’s no surprise that traders are becoming increasingly bearish on oil once again,” said Craig Erlam, an analyst at Oanda.

But the price later recovered in European and US business as traders focused on stock draws expected for the remainder of this year, leaving the 2017 outlook to one side for now.

At around 1450 GMT, US benchmark West Texas Intermediate futures stood at $42.62, up from $41.55 seen in Asia, and North Sea Brent futures at $45.10 against $43.91 earlier.

But despite the bump, both contracts are still well below their mid-June highs of around $51.20 and $52.50, respectively.